Does executive compensation incentivize managers to create effective internal control systems?

SOX Disclosure and the Effect of Internal Controls on Executive Compensation

“…Extensive research has provided evidence on the relationship between ICSs and executives’ compensation, with particular regard to the CFO (Brown & Lim, 2012; D. Cohen, Dey, & Lys, 2008; Erhemjamts, Gupta, & Tumennasan, 2009; Henry et al, 2011; Hoitash et al, 2012; Schiehll & Bellavance, 2009).…”

“…Henry et al (2011) focus on CFO compensation and the effectiveness of ICSs under SOX §404. They find that appropriate compensation increases the effectiveness of ICSs, by motivating CFOs to improve their performance.…”

“…X. Zhang, 2007) and on the effects of internal control weakness disclosures on the cost of equity and the value of the firm (Ashbaugh-Skaife, Collins, Kinney, & LaFond, 2008; Beneish, Billings, & Hodder, 2008; Elbannan, 2009; Jain & Rezaee, 2006; Li, Pincus, & Rego, 2008; Ogneva, Subramanyam, & Raghunandan, 2008). Recent research has extended the investigation of the effectiveness of ICSs on lowering individual risk for the CEO, CFO, and other executives (Henry, Shon, & Weiss, 2011; Hoitash, Hoitash, & Johnstone, 2012). Because CEOs and CFOs are personally accountable for the effectiveness of the ICS, it is likely that they are willing to manage firms with ineffective internal controls only if owners pay them higher compensations.…”

A Study on the Effectiveness of Management Incentive and Internal Control- Based on the Data Analysis of Shanghai and Shenzhen Stock

“…Theresa. F.H enry, John j. hon, Renee E.W eiss pay part of the (2011) argue that can explain and internal control effectiveness were positively correlated relationship [4].…”

A Literature Review of Directors’ Supervising Managers: Based on the Comparison of Equity Incentives and Monetary Salary Incentives

“…Combined with the research content of this paper, this paper mainly reviews the relevant documents that the grantees are senior managers and the exercise conditions include performance requirements.Kuang & Qin used the UK's performance option data study from 1999 to 2004 to find that the use of performance options can lead to closer contact between management and shareholders[14]. Henry et al found that when the optimal contract theory and risk sharing hypothesis were given to the executives with moderate over-remuneration and equity incentives, it would help to improve the effectiveness of internal control[15]. Jayaraman & Milbourn found that using the auditor industry's professional competence as a monitoring and inspection mechanism, found that equity incentives increase executives' manipulation of can mitigate the negative negative impact of CEO volatility on major defect repairs in internal controls[17].At present, Chinese scholars are very rich in the research on executives' equity incentives.…”